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Sterling gained strength on Tuesday after UK inflation figures came out stronger than expected, while the dollar also fell against the euro and the yen.

Data released earlier by the Office for National Statistics showed January's consumer price index was 3.0% higher than a year ago after easing to that level at the end of last year from a peak of 3.1%. This headline rate was in line with the Bank of England’s inflation report last week but stronger than the consensus forecast of 2.9%.

Core CPI, which strips out more volatile prices such as fuel and food, rose 2.7% in January, more strongly than the 2.6% predicted and up to its joint-highest level since 2011 from the 2.5% rise a month before.

If anything this ups the pressures on the Bank of England to raise rates in the spring, as it indicated it was quite willing to do if the economic data backed this up. Markets are now factoring in a greater than 50% chance of two or more BoE rate rises in 2018.

"Unfortunately for Mark Carney, his recent reasoning that inflation could rise over the short term due to energy prices appears to be undermined, with the core reading showing that UK inflation is on the rise irrespective of energy prices," said Joshua Mahony, market analyst at IG.

The pound spiked as the inflation figures beat expectations, however the effects were short lived, said analyst Fiona Cincotta at City Index. "A higher inflation reading, coming to a back drop of a more hawkish sounding BoE would normally send the pound soaring. The fact that it didn’t, suggests that market participants are at least cautious of the ability of the UK economy to sustain sooner and faster rate rises in the face of Brexit uncertainties."

Cable was up 0.4% to $1.3898, while against the euro the pound was down 0.2% to €1.1233.

Against the euro dollar was down 0.6% to $1.2364 and down 1% on the yen to 107.6.

The euro-dollar was been pushed higher on the back of the weakness in the US dollar, said David Madden at CMC Markets.

There were no major economic announcements from the eurozone or the US today, "but the weakness in the greenback for the second day in a row is helping the euro," he said. "Since early November the single currency has been in an upward, and the dip in the dollar is assisting the move."

New US Federal Reserve chief Jerome Powell and fellow policymaker Loretta Mester both spoke. Powell stressed that the US central bank is "gradually normalising rates" and that he will "remain alert to any financial stability risks", while Mester said the Fed had seen "some welcomed pickup in inflation".

The comments were timed to come a day in advance of important US inflation data. Goldman Sachs said US economic data will be crucial in determining how far the correction has to run further and the CPI data this week "will be key to watch".

The consensus forecast is for headline CPI growth of 1.9% on the year and 0.3% on the month, with core annual CPI growth slipping to 1.7% from 1.8% with a monthly rise of 0.2%.

Goldman expects January's core CPI to move back to 1.7% year-on-year from 1.8% in December. "While a large upside surprise on Wednesday may prompt a second leg in the selloff, we ultimately expect US inflation to rise only gradually."